What if there is no Day of Reckoning

What if there is no Day of Reckoning

Our universe as we know it is finite but space – the total of all the universes out there – may be infinite. In practice we do not know what infinite is because we can conceive only of measurable things and they, by definition, are finite. We have a theory of infinity, perhaps, but to intelligently grasp it may be beyond us. We are time and space based.

Let’s assume that one day we will really grasp the idea of infinity. Then we will understand the concept of no beginning and no end. Intellectually, no end means no day of reckoning. I speak not of religious reckoning, although that, too, would seem to be embraced by the concept if we ever understand it, but of summing up where we have got to so far. Difficult to do an Interim Report if there is no way of knowing how far down the road you have got.

The Oxford Review of Economic Policy has published a paper by WiIlem Buiter on Rebuilding Macroeconomic Theory. While this may not appeal to you as light snooze-time reading it is a subject you should pay attention to, especially if you are under 100 years old or so. I have yet to read the paper but the ideas that provoke it have been swirling around in my head for some time. My thinking goes like this.

Prudent economies save. Having a good stash of money in the vault as a protection against the worst rigors of life is as near as we can get to comfortable – assuming, of course, that the money keeps its value. That value is purely what we attribute to it. It used to be gold. Then, at least, we had tangible evidence of wealth even if it was hysterically illogical to dig it up in order to bury it again. But we abandoned ‘the gold standard’ and now rely on our collective myth that a dollar is worth a dollar.

It hasn’t always been. During the 1970s the British pound had very high inflation, briefly above 25%, the level at which many think there will be riots. But it was the weekend so the British, of whom I am one, were too busy relaxing to riot. The lesson from that time seemed to be that if you increase the supply of money you will ramp up inflation. Horrors of inflation at the time of the Weimar Republic after WWI and the hyperinflation in Mozambique in 2008, which reached a monthly rate of 79,600,000,000%, warned us against the dangers of our money losing its value through inflation.

So the euphemistically titled Quantitative Easing (money printing), following the near collapse of the world’s economic system in 2007/8, was anticipated to lead to high levels of inflation. It may yet do so. To the surprise of everyone it has not done so to date. The Bank of England is worried that the current annual level of inflation in UK is a bit high at 3% but their concern is more about the speed at which the rate is rising rather than the rate itself.

Elsewhere, inflation has remained stubbornly low and this in spite of the political wish that it would go up to perhaps 2% or 2.5% to prove that we are not heading for deflation, which is dreaded by everyone except the consumer, who does quite well out of falling prices. At least until their wages get cut.

One of the causes of inflation is increasing debt and here everyone who has anything to do with economics is worried stiff. So heavily indebted are we as a world that it is already clear that, for example, the United States cannot conceivably repay its loans on schedule, or perhaps at all. Consumer debt worldwide is running at eye-watering levels.

This debt has been incurred in the interest of stimulating the world’s economy. It seems to be working. The price, however, is high. Too much debt and our confidence in the value of myth money will evaporate. And our myth money is all confidence. But suppose we take the view that we don’t need to pay back the debt until the end of infinity? Since, by definition, infinity has no end there is then no day of reckoning.

Might we then be saying that our confidence in money is intact – loans are still repayable – but that our debts stretch out to infinity – so not to be called soon. Could we then bask happily in our pool of borrowings, indeed even perhaps increase the size of it, safe in the knowledge that we will not be made to pay it back. Yet.

If we are going to conceive of infinity why not of infinite debt?